Obsolete - do not use until updated. IM

IMHO there isn't actually a difference -- or problem -- with the advice FS have received.  The difference is that FS have chosen to pay all the interest earned over the life of a loan to the people holding the loan parts at the time the loan is closed and the interest is paid.  And the tax rules seem pretty clear that whomever is paid the interest reports the income and pays any tax due.  The two other platforms with SMs that I'm familiar with (AC and SS) don't do that.  Instead, they calculate the amount of interest accrued up to the time the part is sold/bought on the SM and then pay that to the seller when the interest payment is received.  That might happen within a month (where payments are made monthly), or at maturity (where interest is rolled up during the term of the loan and paid at maturity), or even well after maturity if the borrower doesn't repay on time.  In that case, everyone who held parts of a loan over its life will receive their share of the interest, and pay any tax due on that income.

The key point is that the difference in tax treatment is purely the result of the difference in the way FS decided to pay the interest.  They didn't have to do it that way -- they could have done it the way other platforms do -- but that's what they decided to do.  ISTM that the FS method is a lot easier to implement from a platform's point of view and that maybe why FS set up their SM that way.  Other platforms may have looked at the results for investors of that method and concluded that they'd rather use a different method that didn't have the same consequences, even though it meant they have to keep track of who is owed how much accrued interest.  And when loan parts can be bought and sold multiple times before interest is paid, that has to require a fair amount of record keeping.

I'm sure that is why FS have tried to make the consequences of SM purchases clearer with the "CAUTION" that caveman38 quoted a bit earlier in this thread, though they didn't do that at first and added that note only after there was a lot of discussion of those consequences here in the forum.  They might have done it without needing our prompting -- who knows?

An unanswerable question is whether all buyers fully understand the consequences.  I suspect there will be some who don't.  If that's the case, some will be surprised later.  And some of those will complain.  How big a stink will result from that is another good question, and that will test the adequacy of the cautionary note.  Unfortunately, the result of that will be negative PR for FS even if the cautionary note is held to be adequate in the end.

Could give some interesting results if the buyer is investing via an IF ISA? now there's something to ponder ...
Can't imagine HMRC being too happy with some of the implications that could occur?
Brian

Assuming it was a choice and not just a decision required based on the advice they received that that was the correct way that interest paid at term had to be treated ie that the borrowers debt (including accrued interest) had to passed as a whole to the purchaser and couldnt be sub-divided into interest & capital. AC obviously have made their decision based on different advice. As we have seen there are an number of areas where advice seem to differ, handling of client accounts for instance. Another seems to be the tax treatment of cashback. Most platforms treat it as an incentive to lend & therefore not taxable but I notice from my AC tax statement that they have treated cashback as taxable. Hopefully, with full FCA authorisation & ISA permissions some of these discrepancies will be resolved and clarity provided to lenders, but as we know HMRC are constantly reinterpreting at the margins.

An Fs ISA is potentially part of my 2016 plans. Not buying from myself though.

I am not sure if you will be allowed to buy from yourself, especially in a similar situation as the SM on FS.

Thank you for taking the time to answer at this time on a sunday night.. much appreciated.